Retail Sales, Inflation, Interest Rates Rising

Financial FAQs

Gasoline prices pulled down February’s retail sales, falling 0.6 percent after rising 2.1 percent in January. But when excluding volatile autos and gasoline prices, sales rose 0.2 percent vs January’s very strong 1.1 percent. And control group sales, which are another core measure, inched only 0.1 percent in the month but follow an outstanding 0.8 percent gain in January, one that initially posted at 0.4 percent, says Econoday.

image

Graph: Econoday

And strong retail sales are helping to push retail inflation higher, with the Consumer Price Index for retail goods and services now at 2.7 percent. This has to be why the Federal Reserve on Wednesday just increased its benchmark short-term interest rate for the second time in three months and signaled two more rate hikes this year. The Fed policy committee voted 9-to-1 to raise interest rates to a range of 0.75 to 1 percent.

image

Graph: Econoday

The overall year-on-year CPI rate continues to climb, up 2 tenths to 2.7 percent that is well above the general 2 percent Federal Reserve target rate that was last matched nearly 5 years ago, in March 2012. But the core rate, which excludes energy, is steady at 2.2 percent.

So inflation is hardly a problem, and the Fed may be acting too quickly when economies will only grow more with higher prices, hence higher inflation. Because this means companies can raise their prices, hence profits. They can then expand their production of goods and services. This should be a no-brainer, so it is puzzling why the Fed is acting now, when it’s not even clear when and how the Trump administration will be able to enact their growth agenda.

In fact, it is mainly because gas and energy prices are stable that inflation hasn’t been rising faster. Energy prices fell a very sharp 1.0 percent in the month of February with gasoline down 3.0 percent. Yet year-on-year rates are still very strong, at plus 15.2 percent for overall energy and plus 30.7 percent for gasoline. These are the gains that are pushing up the headline year-on-year inflation rate.

Harlan Green © 2017

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

About populareconomicsblog

Harlan Green is editor/publisher of PopularEconomics.com, and content provider of 3 weekly columns to various blogs--Popular Economics Weekly and The Huffington Post
This entry was posted in Consumers, Economy, Weekly Financial News and tagged , , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s